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Edited Transcript of SMBK earnings conference call or presentation 25-Apr-19 2:00pm GMT

Q1 2019 SmartFinancial Inc Earnings Call

Chattanooga May 1, 2019 (Thomson StreetEvents) -- Edited Transcript of SmartFinancial Inc earnings conference call or presentation Thursday, April 25, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Bryan Johnson

SmartFinancial, Inc. - Executive VP & CFO

* Nathaniel Frank Hughes

SmartFinancial, Inc. - EVP of SmartFinancial Investment & Institutional IR

* Ronald J. Gorczynski

SmartFinancial, Inc. - Executive VP & Chief Administrative Officer

* Wesley Miller Welborn

SmartFinancial, Inc. - Chairman of the Board

* William Young Carroll

SmartFinancial, Inc. - President, CEO & Director

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Conference Call Participants

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* Catherine Fitzhugh Summerson Mealor

Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP

* Daniel Edward Cardenas

Raymond James & Associates, Inc., Research Division - Research Analyst

* Feddie Justin Strickland

FIG Partners, LLC, Research Division - Research Analyst

* Tyler Stafford

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Good day, and welcome to the SmartFinancial first quarter 2019 earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Frank Hughes, Investor Relations. Please go ahead.

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Nathaniel Frank Hughes, SmartFinancial, Inc. - EVP of SmartFinancial Investment & Institutional IR [2]

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Thank you, Andrew. Good morning, and thank you for joining us today on our first quarter 2019 earnings call. With me this morning are Miller Welborn, Chairman of SmartFinancial Inc.; Billy Carroll, President and CEO; Ron Gorczynski, Chief Admin Officer; Bryan Johnson, our Chief Financial Officer.

After our prepared remarks, we will then take questions. Yesterday evening, we issued an earnings release discussing our first quarter results. We have also prepared a slide presentation, which we will refer to during these remarks. Both of these can be found on our website at smartbank.com, in our Investor Relations section.

During today's call, we will make forward-looking statements, which are subject to risks and uncertainties, and are intended to cover the -- are covered by the safe harbor provisions of federal securities laws. Actual results and trends could differ materially from those set forth in such statements due to various risks, uncertainties and other factors. More detailed information about these and other risk factors can be found in our press release that preceded this call, and in the risk factors and forward-looking statement sections of our annual report on Form 10-K. Statements are valid only as of today's date and the company disclaims any obligation to update this information, except maybe required by applicable law.

Additionally, today's presentation contains non-GAAP financial measures. The reconcilements of such measures to the most comparable GAAP figures are included in our earnings press release at the end of the earnings call presentation. Please also note, this event is being recorded.

I will now turn the call over to our Chairman of the Board, Miller Welborn.

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Wesley Miller Welborn, SmartFinancial, Inc. - Chairman of the Board [3]

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Thanks, Frank and thanks group for joining us this morning. We look forward to business with this group in discussing our Q1 '19 earnings and operations. Great quarter to talk about this morning and excited about where we are as a bank. First thing I wanted to do is address the news from yesterday about our termination of our merger agreement with Entegra Bank. We are sort of disappointed it didn’t work out, we really liked the idea of the combination, the team, the footprint and operations are all first class. It's just a situation where they were faced with a [financial list] of toping offer that was in excess of 25% greater than our agreed upon price. We did have the opportunity to match the higher offer but we chose not to do so. The Entegra board exercised their proper fiduciary responsibility and they did what they had to do and we did as well. Our acquisition strategy has been very disciplined over the past several years with 5 or 6 previous deals and we intend to remain very disciplined in the future as we address future possibilities.

Now we have already received our $6.4 million breakup fee and Billy is going to talk about a few more of the specifics we've made but -- improvements we've made but suffice to say we are better and stronger than ever and let me be clear we are playing offence.

Now, a couple of comments about our first quarter numbers. Great earnings quarter with the year-over-year growth of earnings of 39% to $4.7 million. Very strong annualized loan growth at about 15% annualized growth $63 million increase in the loan portfolio. And our yield on earning assets improved to 5.25% year-over-year. Non-interest expense certainly improved and our NIM held very strong for the quarter. I will also say all this was done while working very hard on our previously discussed MOE. I think it's a great, excellent testimony to the work ethics and determination of this team. I can't wait to see what the balance of 2019 has in store for us. And with that I am going to turn it over to Billy to dig in a little deeper.

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [4]

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Thanks, Miller. And good morning, to everyone on the call. Yes, and I will make a couple of comments to follow up on Miller's, related to the termination of our merger. And Miller hit the nail on the head, we are disciplined and in this deal at the revised terms it just wasn’t good -- good for us and good for our shareholder base. And we are a little disappointed. But I will tell you, I am energized at the work that has been done prepping for us to be a $4 billion bank. So that is what would happen in July as we had originally planned but it will happen soon. And so if we continue to execute we are going to hit that mark. So we've started a lot of those initiatives to really get us to that spot. And that's really what we've been working on for the last couple of quarters.

If you will flip over -- and hopefully you have the decks in front of you -- if you will flip over to Page 5, we put a slide in the deck that talked a little bit about the areas we've been working on and that we'll continue as we pivot. We are continuing to work on centralization of some operational and finance areas. We've done a bank-wide organizational chart planning to gain efficiencies in a number of different departments throughout the company. We've got a major decision on our core data processing provider. We've a contract at SmartFinancial, SmartBank that is up in early 2020. So we had started a process of core decisioning as part of our merger planning. That process is ongoing. We are continuing to move through that, that should yield some great benefit for us as we look ahead.

We are continuing the hiring of our bank talent, continuing to evaluate M&A opportunities, although we've been out of the game for a little while, we are jumping back in and starting to look at opportunities there. And then we've also got an approved share repurchase program in place. And I think that's important to note that -- that's available to us as we evaluate capital utilization opportunities. So we are going to move forward. We are going to pivot a little bit. But I love where we are positioned today. We may have some other questions on this, we will be glad to answer those in a bit. But I want to go ahead and jump into the highlights of the quarter.

As Miller said it's really a solid quarter with everything we had going on. I am going to turn it over to Bryan in just a second to dive into the financial metrics in some greater detail. But -- and then he will hand it back to me, I will wrap up and give you some anecdotal color of where I see the bank today.

Again great quarter, operating metrics and I'll focus a little more on our non-GAAP numbers and metrics for purposes of this call, continue to trend on a positive way, particularly when you look at our year-over-year Q1-to-Q1. For us I'll focus more on the year-over-year versus the Q-over-Q just because we are in such a rapid growth mode. I think those are key metrics to look at solid quarter-to-quarter but even better year-over-year.

Looking at in my opinion some of our key metrics ROA, ROE, EPS, total revenue all had great growth, plus organic balance sheet growth all while prepping for a major deal. And really probably as important if not more important and all that credit quality remained extremely solid. Earnings coming in around $0.40 core, $0.39 fully diluted. It was right in our target range. Core on our way right on our 1% near-term target. And core return on tangible equity at 10.79%, all really good metrics.

Expenses efficiency ratios, expenses where in check for the quarter. We had a couple of items for some variances from Q4, we had 2 months of Foothills in Q4, and 3 months of that combination in the first quarter, with that full run rate. Had some data processing credits that we had to use in 2018 that lowered our data processing expense a little bit in Q4, had to pick that up in Q1. All that said still ended the quarter with a sub 65% efficiency ratio.

The balance sheet loan and deposit growth, really strong as Miller alluded to, a 14.5% annualized clip on loan growth. And we also kept funding pace with core funding also having strong organic growth as well.

Credit quality, again really solid. Non-performers have stayed low for us but even dipped further ending the quarter at 0.18%. So overall, we really like where we are from a financial side and our financial metrics. And I am going to hand it over to Bryan and let him jump into the slide that go through the numbers in greater detail.

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [5]

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Thank you, Billy. Everyone, I am going to start on Slide 8 balance sheet trends. So looking here you can see going back to the end of 2017 a few balance sheet items. Total assets, up $630 million; net loans, up over $500 million; total deposits, up $550 million plus; book value per share, up over $2.00; tangible book value per share, up $1.28. Every one of those graphs going up into the right.

So what did our earnings look like in the quarter? On the next page you can see the profile. Net operating diluted EPS was up 15% year-over-year. Moving up a couple of lines EBIT earnings before taxes increased 45% year-over-year. Driving that increase net interest income up 25%. We will go into further details on that but that's coming both from increases and yields and increases in earning assets. Same time non-interest income up 17% offset slightly by non-interest expense up 18%. We will remind you compared to last year, we have had 2 acquisitions that's driving the increases in both salaries, EB, and occupancy, that meaning the Foothills and the Tennessee Bancshares acquisitions. Total revenue up 24% year-over-year. Some very good metrics.

Going into the next slide, diving into net interest income. Margin was down quarter-to-quarter but that was due primarily to lower accretion. Accretion drove probably about 2/3 of the decreases in margin. But having said that, you strip out all the accretions margin helds, we change less than 1 basis points quarter-to-quarter. Couple of other things I'll highlight as you look down at all our other earning assets increases on yields on taxable security, increases in yields on tax-exempt securities, increase in yields on Fed funds and other investments. So while we are seeing some pressure on the deposit side like everybody else, we're making it up on the earning asset side. Cost of funds ended at 1.21% for the quarter.

Moving on to non-interest income on Slide 11. You see we've taken consistent increases on both deposit accounts and other non-interest income components. Really the only item we've had with a little bit of volatility, it's been our gain on sale of loans and other assets. We did have a very strong third quarter of last year. And as you know the mortgage business is highly seasonal and subject to interest rate changes. So first quarter is normally slow but picks up in the second quarter. And based on what we're seeing with the drop in interest rates, as a lot of other people have said, the mortgage business is picking up.

Next page, non-interest expense. A highlight here that we were able to keep the all in efficiency ratio under 70% for the second quarter in a row. And it looks even better if you look at the operating efficiency ratio down at 64.3%. Salary increases are primarily due to adding associates plus, as Billy said, we had 3 months of Foothills, first 2 months in the prior quarter. If you look at merger expenses $923,000, about 2/3 of that was related to the Entegra deal (inaudible).

Moving on to the next page, going through some details on our deposits. We still hold at about 1/3 term deposits, 1/3 savings money market, 1/3 DDAs. You can see on the right side the break down over time and how we've managed to grow every single category. And finally down in the lower left, historical cost of deposits. We were able to lag during the cycle, but if the Fed Funds rate increase last quarter, there was a little bit of an increase for us this quarter. We do think the pace of increases have slowed down. And if you do the math on the beta down there at the bottom, over the last year, it's 57%.

Turning over to the loan portfolio, Billy noted that we had outstanding loan growth 14.5% for the quarter, up over $60 million. I do think it's very praiseworthy about that and which our production team has done an outstanding job is if you look at that CRE ratio down at the bottom lower left, it didn't move a breath. For a bank that's historically been a CRE shop to be able to transition and grow like that with C&I and other residential loans, it's just outstanding, a real tribute to the (inaudible) team.

Finally let's talk asset quality a little bit. Superior asset quality just 18 basis points compared to peers of over 90. If you look quarter-to-quarter in the earnings release you will see non performing loans were down $700,000, (inaudible) down over $400,000, so net decrease of NPAs of over $1 million.

Looking down at the lower right, you -- if you want to pick out on anything, you'll see there's a slight blip up, and I do mean slight, on net charge offs to average loans. Those were fully reserved FAS 114 loans, that we knew we most likely weren't going to get anything on, the legal cases were -- went their course and they were charged off. So that's a onetime event and we expect that to trend down.

Finally, I want to talk a little bit about our acquired loans. We have $8.7 million in allowance, we have $20 million in discounts on those loans we've acquired. Our acquired book is still about 30% or approximately $550 million of our portfolio.

With that I'll turn it back to Billy to wrap up.

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [6]

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Thanks, Bryan. Appreciate the detail on all those additional pieces. As you can see and hear from his comments, a number of very positive trends have continued. We have a few areas where we need to concentrate. The good thing is we know where those are and we are planning around those pieces of the puzzle.

Also wanted to touch a little bit on Foothills. It's been overshadowed some the Foothills bank, East Tennessee, a Maryville based bank acquisition that we did -- end of last year. It's been overshadowed a little bit with the larger deal discussions. But we had a very successful conversion and re-branding of Foothills bank in February. This has been a great deal for us, a very smooth cultural and operational integration, I couldn't be happy with it. Like I said, I think it's just been a little overshadowed with everything else, but a very solid transaction that is working exactly like we had planned.

Some other anecdotal comments about the quarter, obviously, we have been focused a lot on this proposed deal over the last several months. And no doubt it's impacted some of our standalone efficiency initiatives, as we've been planning to be a $4 billion bank. So we're a little heavier in some expense categories than we would have been otherwise. But we know for those are and we know what we need to be doing to get those back in line here in the next little bit.

Our non-interest income continues to be an area of emphasis, as Bryan noted in the slide deck. The overall trend year-over-year is positive. But we've just grown assets at a faster pace so its capital ratio flat. We have some service revenue enhancement initiatives in place but we put those on hold during our M&A discussions. Now we're back -- we have those back on our Board, we've also added 3 new financial advisors to our investment platform over the last few months. So we think we've got some good trends moving on that front over the next few months.

Mortgage was a little soft in Q1 and we're looking at some ways to generate stronger revenue production there. So we really believe that we will see that number continue to climb. So by non interest income projections, I think we'll continue to move in the right direction, they've just been a little bit flat for a couple of reasons over the last quarter or two.

As I mentioned we added 3 new financial advisors in our investments platform, which have been great adds from a production standpoint. We also added a new market executive in Huntsville, Alabama, probably one of the best growth opportunity markets in our entire footprint, really excited to bring a new outstanding market executive with a lot of Huntsville experience on to our team. We've also added a couple new lenders in Knoxville in the recent months. So our ability to attract talent continues to be one of our strengths. Asset quality, again Bryan alluded to this, outstanding, really low levels. The only blip was just some cleanup of those -- and it was very small -- a small tick up in charge offs but that's -- that should be non-recurring NPAs at 0.18% well below pure median.

I'll give you a quick seasonal update as well. Our plan is to run parallel here in Q2 and we anticipate some guidance coming out in Q3 on that [foyer]. And Bryan touched on this, but I also want to just hit on it again, CRE ratios. As he said, don't overlook that. I mean we've been a historically a commercial real estate bank if we -- as we have transitioned from a smaller community bank now to a much larger community bank. And to be able to have $60 million in net balance growth on our loan side and not to take CRE ratios up, it's a testament to our sales team. The lenders that we have hired over the course of the last year, as we now have a great diversification in our loan growth.

I'll stop there and I'll give you a couple of -- just looking forward a couple of big takeaways on the call and then I am going to stop and open it up for comments. Big takeaways, I think for where we are now. Strategically, we're in a great position. Obviously, as I said, mixed emotions yesterday with that announcement. But we are in such a better position prior to the Entegra announce -- as we have evaluated a lot of our strategic objectives.

The internal planning that we have done over the last few months has made us an outstanding organization, already was there, but this has made us so much better. On the M&A front, that's probably going to be a question that we're going to get, be happy to answer on those. I actually was asked yesterday, do I feel pressured to get back into another deal? My answer is, no, really not at all. As we demonstrated again this quarter, we are building a great organic growth company.

We just like M&A, and I think we've gotten pretty damn good at it. So we're going to continue to evaluate those M&A options. I do believe that there will be some available tools if the fit is right, but we don't feel pressure as a team to do it. I personally hope to find some, because I think we're one of the best integrators in the southeast now, as evidenced by really, really, successful last couple of deals.

We have a strong and we're focused on efficiency, as the senior team during this lull over the last few weeks, as we've been waiting on this announcement. We've been diving into our focus on efficiency and expense control. That process is going to bear some great fruit as we look through the rest of 2019.

And lastly, we have an open playbook, this is the first time in a long time, where we've got the ability to really step back and assess a number of great strategic opportunities for this company. So that process started yesterday and we're really excited about where we -- where our team is positioned and we're ready to tackle those great opportunities ahead.

So I'll stop right there. Open it up, I know we'll have some questions, open it up and then our team will be able to answer those, so questions.

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Questions and Answers

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Operator [1]

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We will now begin the question-and-answer session. (Operator Instructions). The first question comes from Catherine Mealor of KBW.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [2]

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I just had a couple of questions. One was first on expenses, so Bill you mentioned that you did a lot of, I mean, you said work prepping to be a $4 billion bank with some investments in the core data processing and people and all that. So as we think about if we take out Entegra of our forecast is it -- should we have -- should we keep it with a little bit of an elevated level of expenses near-term. Just given, you will still have some impacts from some of those investments that will be better levered as you continue to grow and maybe as you do your next deal? Or is -- am I thinking about it too much and that really won't move the needle?

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [3]

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No, I think you're really thinking about it, right on Catherine. I think expenses have been elevated. We were planning to be a $4 billion company. And we were thinking about some of the expenses on the other side, obviously those won't be there. But I think that's really been part of what I alluded to with our team's efficiency planning over the last little bit, some of that will. So I think to answer your question, yes, we are probably going to have a slightly higher expense run rate moving forward because, yes, we do see the growth, we see the opportunities while we don't have anything teed up to lever that today, I think our team and our Board has always been given us the latitude to invest for where we think the company is headed. And so I think we probably hear in the next little bit we'll have a slightly higher, but not a lot. I mean, I think we're still -- there are still some areas here internally where we can get some of those efficiency gains back. We'll get those, but probably on the whole, a slightly higher expense run rate.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [4]

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So somewhere around kind of where we're kind of hovering around this 14.7 where you were this quarter and then growing a little bit from there?

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [5]

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Yes. I think that's about right.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [6]

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And then on the buybacks, any immediate thought on getting active on the buyback now that you don't need the capital for the Entegra deal or just given in case you see better growth and you're going to get back in the M&A conversations maybe you'll be a little more conservative on holding back that capital. How do you think about it?

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [7]

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Well Catherine we have the approved buyback, we obviously right after it was approved, we jumped right into this other deal we were looking at. So we have not utilized that yet, but it's certainly on the (inaudible) by turns. We look at it on a regular basis and it becomes a good business session we will certainly jump in there.

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [8]

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Yes and I'll add Catherine, you all know it's a math formula for us, and we've got the models and have really looked at kind of where -- where the stock price is and utilization of that capital. So yes, we watch the stock price. I still think we're undervalued as a company. And so as we see -- if we see an opportunity where we need to jump in, we'll jump in. We also know that with our growth trajectory we want to have capital available to do that. So it's a balance, but we're watching it and -–

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [9]

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Looking at it daily.

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [10]

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We are there and we'll utilize it if we need to.

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Operator [11]

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The next question comes from Tyler Stafford of Stephens.

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Tyler Stafford, Stephens Inc., Research Division - MD [12]

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Nice quarter, congratulations. I just want to dig into the margin a little bit here. Just on the loan side first, can you just talk about what you're seeing in terms of pricing for new loan production and where those new money yields are coming on relative to the core loan deals today?

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [13]

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Yes. Take a look at kind of where we're seeing the core yields. Overall, I think our team has continued to be able to get pretty good pricing. Obviously competitive situations you've got to get tighter when you have to get tighter. But I think on the whole we're still seeing loans come in, loans come in at fair levels. We're still around kind of that [five] handle or a little bit better and in many cases. And obviously we've got some deals that come in a little below that as well. But overall loan yields have held well for us. I think even though you've seen a little bit of drop back in the curve, we've not seen that flow through to some of our fixed rate pricing. I think Greg Davis and his team have been able to do a really nice job of holding firm on those rates. So from a loan yield standpoint I think we can continue to hold that same trend line where we've been over the last little bit.

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Tyler Stafford, Stephens Inc., Research Division - MD [14]

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And then I guess similar question on the deposit side. What did you guys see throughout the quarter on deposit cost? Did that ease at all for you guys as you progressed through this quarter?

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [15]

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Yes, I know what -- what Bryan and Ron we've talked about this at length. We have lagged some of that -- some of those costs over the last -- but it seems we've lagged -- lagged the market, we've also lagged some of our peers. We had a little bit above -- a little bit up -- I think we were up 10 basis points in the quarter. I think it's probably eased some, even for us. And I think probably guidance forward is flat to slightly increasing. We did push up some rates, some CD rates, some money market rates, so especially as CDs mature and renew, I think just the overall trend probably would be to edge up a little bit. But I think we're probably more in a maintain mode right now. I don't see that number really jumping a lot kind of with where rates are. And Bryan --

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [16]

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And our market diversity has helped us a lot on that too --

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [17]

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Bryan any comments on that side?

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [18]

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I would say Bill in spite of -- on that the -- what pressure we've had has been on the money markets, which pretty much have caught up. And the CDs will continue as they repriced are going to go higher. But if you look at the rest, I know we didn't get pressure on savings. And you can go look at the yields on the DDAs we really will hold those flat as well. So and as Miller said having the market diversity means a great deal and when one market leader comes back and says, "I can get you better than that for 12 months CD" it helps the whole team.

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Tyler Stafford, Stephens Inc., Research Division - MD [19]

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Okay. So relatively flattish pressure on the deposit side and then the loan side roughly blended yields of 5% relative to what I think core loan yields were this quarter of around 5.20. So just wrapping those 2 up -- those 2 dynamics up together, would you still expect maybe modest core NIM compression from here? Or how do you see the core margin progressing throughout the remainder of '19?

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [20]

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I'll let Bryan climb into this they have dug in. I think -- I still think we're in a probably a flat, might it tick down a basis point? I just -- I don't want to say it's contracting now because I don't think it'll contract a lot. I think we're in a spot where we can hold it, it might drop, it's probably a slight contraction if any over the next couple of quarters, but that would be my guess, Bryan your thoughts.

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [21]

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I would agree with that. I think we've pretty much probably so -- what should be for us at the bottom at least this range I don't see that curve continuing to drive down on us.

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Tyler Stafford, Stephens Inc., Research Division - MD [22]

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And then just last kind of modeling question for me just on the tax rate, it was a little bit higher this quarter, just expectations for the effective tax rate this year?

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [23]

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Yes that was driven by a non-deductible merger expenses. So that did take us up probably at, I would say probably 0.5% maybe 60 basis points, so we'll expect that to roll back down once the non-deductible stuff comes off, so 24.5, 24.3 maybe.

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Operator [24]

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(Operator Instructions). The next question comes from Feddie Strickland of FIG Partners.

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Feddie Justin Strickland, FIG Partners, LLC, Research Division - Research Analyst [25]

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Quick question. I really appreciate the slide on the acquisition strategy. Can you give us any more color on a minimum definition for meaningful earnings accretion?

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [26]

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It's funny, obviously, if you're going to do a deal, we need to get some earnings accretion out of it. And so, for us, the number -- we -- and especially, I'd say this, especially, as we've gotten larger, doing smaller deals, it makes getting double digits earnings accretion a heck of a lot tougher. But for us, you'd like to see something that would be north of somewhere in the high-single digits is probably a fair range. It depends on really where it is. If we -- it's just kind of like the Foothills deal is a great example. It was earnings accretive, but it wasn't as earnings accretive as our previous deal, but it was our great in-market fill in. So if we can find some -- if we find opportunities that can add density in our footprint or in our zone for we already are, then we're probably willing to take a little bit lesser. High-single digits is probably a good get and that really…

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Wesley Miller Welborn, SmartFinancial, Inc. - Chairman of the Board [27]

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That's a hard question to answer, because location means so much -- as much as anything in that so it could be -- but yes, hopefully, high-single digits would certainly be at target we would look at and make a few exceptions based on location.

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Feddie Justin Strickland, FIG Partners, LLC, Research Division - Research Analyst [28]

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I understand that. You know I had to ask so any appreciate it --

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [29]

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You know, great question.

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Feddie Justin Strickland, FIG Partners, LLC, Research Division - Research Analyst [30]

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And 1 quick follow up on that. Would you consider several quarters without M&A? Is that scenario possible?

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Wesley Miller Welborn, SmartFinancial, Inc. - Chairman of the Board [31]

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Absolutely possible. And we've said this repeatedly, our Board has never ever, and I literally mean that never ever pushed us, ask us, driven us, neither have any of our investors, to make an acquisition. We just feel like the ones that we've made have been good, timely, accretive and just have worked really well for us. So are we going to be continuing in the market and have our eyes and ears open? Absolutely. But if we don't do one for a year, no big deal at all. We feel zero pressure.

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [32]

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Yes. And that's a -- I think it's a great comment Miller. And Feddie, what I would just add, as I said in my comments, we have -- and a lot of times, I don't think we get enough credit for this. We're building a great organic company. When you look at the number of sales adds that we've had in our existing markets through these acquisitions. Every acquisition that we've done, we've gone into the market and improved that core franchise that we bought by adding great sales talent. And so, that we -- we're -- a lot of banks got it really top out and that's what they're known for. We're doing both. And so, for us, we like doing M&A, because I think we are -- I think we're probably one of the best in the Southeast at it. And so for us, we obviously love to do it, but it's got to fit. So we have to do something if we can't find the right fit. We've got a great organic strategy, like I said, we were 14.5% clip on the one side annualized this quarter, that's probably higher than what we would normally see. I think we're still a solid high-single digits organic growth company. And -- but I still think, if we need to kind of just buckle down, focus on -- focus inward -- focus on internal efficiencies and organic growth, that's a strategy that we've already got sitting here and we're executing today. So we definitely would go a few quarters without it if there's not a great deal.

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Wesley Miller Welborn, SmartFinancial, Inc. - Chairman of the Board [33]

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I think it was proven by discipline we had when we addressed this and the opportunity to move our bid up. We were very disciplined. I'm probably the most proud of our Board for staying disciplined in how we price this deal and looked at the accretion and dilution and just -- and staying focused.

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Operator [34]

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The next question comes from Daniel Cardenas of Raymond James.

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Daniel Edward Cardenas, Raymond James & Associates, Inc., Research Division - Research Analyst [35]

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Maybe just a quick follow up on your fee income initiatives. I mean, how quickly can we see the impact of those initiatives? Is that something that we'll begin to see in Q2 or is that going to take a little bit longer to play out?

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [36]

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Yes, I think it's probably second half of the year. And I'm looking at Ron…

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Ronald J. Gorczynski, SmartFinancial, Inc. - Executive VP & Chief Administrative Officer [37]

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I think pretty blip this quarter.

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [38]

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Well I think it's --

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [39]

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Non core -- you get non core (inaudible) you have to take that spread it out a little bit there. But the initiatives that we've got are things that some of that will be looked at as part of this -- as part of our core data processing as we're bringing in some things related to some service charge routines. We are also were looking. And like I said, mortgage, Bryan alluded to this, I think our trend line for mortgage, and that's obviously a big piece of it. Feel like it's moving pretty well, that can be more immediate. The FAs that we added. We added some great FAs to our investment platform over the last several months. And those, as they're trailing 12 becomes part of our trailing 12, then we start picking up some really nice revenue there. So there's a little bit of lag on that piece. So probably not. I wouldn't say a Q2 is probably -- or maybe a little better, but I expect the second half of the year to have some better up trends.

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Daniel Edward Cardenas, Raymond James & Associates, Inc., Research Division - Research Analyst [40]

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And then as we think about the efficiency ratio for the company, I mean you're in the around 62% for the quarter. Does that -- can that break 60% by the end of the year, or is that going to take a little bit longer to get there?

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Christopher Bryan Johnson, SmartFinancial, Inc. - Executive VP & CFO [41]

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I think probably a little bit longer, that's our goal. Our goal is to get this things up to 60%. And so, we kind of follow up on the comments that I made to Catherine a couple of minutes ago. I think we're kind of where we are. I think you'll see this thing continue to improve. We want to get -- be able to lever kind of the platform that we got. So to get us down into the 50s, probably challenged by the end of the year, but that's definitely the trend line we're working on.

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Daniel Edward Cardenas, Raymond James & Associates, Inc., Research Division - Research Analyst [42]

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And then maybe a little bit of color in terms of the new lenders that you added in the Knoxville market. How many was that? And are they coming from bigger financial institutions than yours?

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William Young Carroll, SmartFinancial, Inc. - President, CEO & Director [43]

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It's a mix. We've got some coming from bigger financial institutions, well 1 from a small -- a slightly smaller financial institution. So we've got -- we've actually had 3 over the course of the last few months, 2 just here in the recent weeks that we feel really, really good about. Picked up the one in Huntsville was from a large regional -- and continuing to recruit some large regional folks really in a couple of different markets right now. So it's -- I like we're having great conversations with these folks. The platform that we've got, the way we underwrite, the way our credit teams and lending teams are engaged in helping these producers grow their business books is really strong. So it appeals to a lot of folks, especially in the larger organizations. But in Knoxville, we had some from smaller, some from larger.

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Operator [44]

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This concludes our question-and-answer session. I would like to turn the conference back over to Miller Welborn for any closing remarks.

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Wesley Miller Welborn, SmartFinancial, Inc. - Chairman of the Board [45]

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Thank you. Appreciate all your interest and continued interest in SmartBank. We look forward to continuing our journey. I hope each of you have a great day. Thanks.

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Operator [46]

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The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.